Macroeconomics 5,6

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Mr. Smith earns​ $100,000 per year. Each year he spends​ $50,000 and saves​ $50,000. He pays a 5 percent sales tax on all of his spending. Assuming the sales tax is the only tax he​ pays, his average tax rate out of his income is

2.5%

--Advocates of a progressive income tax use arguments EXCEPT for which of the​ following

A progressive tax system taxes according to benefits received.

An appreciation of the US​ $ should result in

a lower price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and​ short-run aggregate supply curves.

Budget deficits may reduce

both domestic investment and net foreign investment

The pending problems with Social Security have been known for years but solutions have not been implemented due to

the political costs

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. If there is decreased security about jobs and future income​, which of the following is the best description of the outcome in the​ economy?

Aggregate demand decreases

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. If the US dollar appreciates​, which of the following is the best description of the outcome in the​ economy?

Aggregate demand decreases.

What would cause a fall in the tax​ base?

Either of the above.

Which of these are the largest sources of federal government revenues?

Individual income taxes and social security withholdings

When imports are greater than exports, as is usually the case for the United States, which of these must be true?

The United States must be a net foreign borrower from abroad.

Suppose that the rental rate of machinery increased temporarily. The result of this would be best described by

an decrease in the​ short-run aggregate supply curve only.

Which of the following changes will shift the consumption function​ upward?

an increase in wealth

A government agency arranges to make loans to businesses whenever an economic downturn begins. This is an example of

automatic fiscal stabilizer

As the economy heats​ up, the resulting increase in equilibrium real GDP immediately results in higher income tax​ payments, which dampen consumption spending somewhat. This is an example of

automatic fiscal stabilizer

In the long run, the rate of inflation is determined by the

growth of the money supply

The federal government periodically has to debate spending because the total federal debt

has a maximum legal limit.

Budget deficits automatically __________ during recessions and __________ during expansions.

increase, decrease

According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:

increasing government spending

The relationship between the MPC and the MPS indicates that the entire decrease in household disposable income

is distributed between consumption and saving.

The cyclically adjusted budget deficit

is measured as if the economy were at potential real GDP.

If real GDP rises above total planned expenditures the economy will see

production and employment decreases

The classical model assumes

pure competition.

Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In​ fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the​ following, except one. Which one of the following is the​ exception?

Automatic stabilizers

Using the figure at​ right, if the government levies a new unit tax in this​ market, S represents the original supply​ curve, and S1 represents the​ after-tax supply​ curve, then the revenues that the government collects from imposing this tax is represented on this graph by

BAEC

Which of these countries is a net lender to the rest of the world

China

When a​ household's disposable income falls to​ zero, what do we expect will​ happen?

Consumption will fall to the level of autonomous consumption

Which of the following is an argument that the incidence of corporate taxation falls entirely on​ consumers?

Corporations pass their tax burdens on to consumers by charging higher prices.

In what type of analysis could an increase in the tax rate lead to a decrease in tax​ revenues?

Dynamic tax analysis

A city government imposes a proportional income tax on all people who earn income within its city limits. In​ 2004, the​ city's income tax rate was 0.04 ​(4 ​percent), and it collected ​$20.00 million in income taxes. In​ 2005, it raised the income tax rate to 0.05 ​(5 ​percent), and its income tax collections declined to ​$19.20 million. What happened to the​ city's income tax base between 2004 and​ 2005?

It fell by $166 million.

Which of these equals the amount of public saving?

The government's tax revenue minus the sum of government purchases and transfer payments to households.

Which of the following statements is true when considering an economy with an​ upward-sloping short-run aggregate supply​ curve?

The multiplier has more impact when the economy is experiencing a recessionary gap compared to an inflationary gap

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. Given that there is decreased security about jobs and future income​, the new short run position of the economy finds itself in is termed

a recessionary gap

The Congressional​ meetings, discussions,​ arguments, debates over fiscal policy and the subsequent signing or vetoing by the President of a bill are part of the

action time lag

The extent to which real GDP responds to changes in the price level along the​ short-run aggregate supply curve is largely determined by

all the above

As the economy starts to recover from a recession and more people go back to​ work, government funded unemployment compensation payments begin to decline. This is an example of

automatic fiscal stabilizer

Every time the federal government runs a budget deficit, the Treasury must

borrow funds from savers by selling U.S. Treasury securities.

A government that spends more than it collects in taxes experiences a

budget deficit

One problem associated with the recent fiscal stimulus designed to move the economy out of the 2009 recession is

it contributed to higher budget deficits

Say's Law

supply creates its own demand

The graph shows aggregate demand and the​ short-run aggregate supply​ curve, using modern Keynesian analysis. Suppose that the dollar becomes weaker in foreign exchange markets. Consider the two effects of a weaker dollar. Due to the weakening of the​ dollar, the price level​ ________, and real GDP​ _________.

will​ increase, may increase or decrease depending on the size of the shifts

Some economists argue that corporate income taxes are typically not paid by​ firms, but by

​stockholders, employees, and consumers.

The Modern Keynesian​ short-run aggregate supply curve is best described by which of the following​ statements?

It is very flat at low levels of real​ GDP; increases slightly as real GDP​ grows; and becomes very steep as real GDP surpasses full employment.

The​ income-expenditure model of real GDP determination is due to the work of

John Maynard Keynes

The slope of the consumption function is the

MPC

What is the relationship between the gross public debt and the net public​ debt?

The net public debt only included government debt held by the public.

If the government begins running a budget deficit, what impact will the deficit have on the loanable funds market?

The supply of loanable funds will decrease

Which of the following statements is true when considering time​ lags?

Time lags in fiscal policy can be extremely long and may take several years before any impact is felt.

Suppose that the value of the US​ $ yesterday was​ $1 = 4 pesos. Today the exchange rate changed such that​ $1 = 5 pesos. One can say the

US​ $ appreciated.

What happens when government spending is greater than government tax revenues

What happens when government spending is greater than government tax revenues

Which of these statements about the federal debt is correct

Which of these statements about the federal debt is correct

One criticism of the corporate income tax is that

a portion of the​ corporations' tax burden is passed on to consumers via higher prices for goods and services and to workers via lower wages.

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. Given that the US dollar appreciates​, the new short run position of the economy finds itself in is termed

a recessionary gap.

Higher government deficits arise from increased government spending or tax​ cuts, which raise aggregate demand.​ Thus, larger government budget deficits can raise real GDP in ▼ a recessionary an inflationary gap situation. If the economy is already at the​ full-employment level of real​ GDP, however, higher government deficits can only temporarily push equilibrium real GDP ▼ below above the​ full-employment level.

a recessionary, above

A government that collects more in taxes than it spends experiences a

budget surplus

If the federal government's expenditures are less than its revenue, there is a

budget surplus

In the classical model, when households save

business investment will offset that savings.

Suppose that there is a​ temporary, but significant increase in oil prices in an economy with an​ upward-sloping SRAS curve. As a policy response to this​ short-lived but sudden increase in oil​ prices, a central bank

cannot stabilize both the price level and the real GDP simultaneously

Spending on new goods and services out of a​ household's current income is

consumption

In 2008, spending on Social Security, Medicare and Medicaid was less than 10% of the GDP. By 2030 this amount is expected to be around 17% of GDP. One government option to solve this problem is to

decrease benefits.

In the Keynesian​ model, if disposable income were to decrease households would

decrease both their consumption and saving

A federal government budget deficit will

decrease the supply of loanable funds and increase the equilibrium interest rate

One way to reduce federal budget __________________ is to increase taxes.

deficits

Another way to decrease federal budget is to cut back on government​ spending, particularly on defined as benefits guaranteed under government programs such as Social Security and Medicare.

deficits, entitlements

To stem an overheated​ economy, the​ President, using special powers granted by​ Congress, authorizes emergency impoundment of funds that Congress had previously authorized for spending on government programs. This is an example of

discretionary fiscal policy

In early​ 2008, it appeared that the U.S. economy was either in a recession or growing very slowly. President Bush announced a program of tax rebates. This program can be described as​ ___________ and was intended to​ ______________.

discretionary fiscal​ policy; increase consumer spending

The balance of trade is

equal to the difference between exports of goods and imports of goods

In the Keynesian model equilibrium national income

equals planned​ consumption, investment,​ government, and net export expenditures.

autonomous consumption

is measured by the intercept of the consumption function and the​ Y-axis.

Since the modern Keynesian Model allows for some price​ response, the aggregate supply curve

is upward sloping

If a country has a deficit in its balance of trade, it means that this country imports

more goods than it exports

To obtain the dollars required to purchase newly issued U.S. government​ bonds, foreign residents must sell ▼ more fewer goods and services in the United States than U.S. residents sell abroad.​ Thus, U.S. imports must ▼ be less than exceed U.S. exports. For this​ reason, the federal budget deficit and the international trade ▼ surplus deficit tend to be related.

more, exceed, deficit

Most economists are __________ a balanced federal budget mandate.

not in favor of

At the point at which the consumption function intersects the 45 degree reference line

planned real consumption equals real disposable income.

Another name for a​ "flat-rate tax" in which the same tax rate applies to all income earners is a

proportional tax

A tax system in which the average and marginal tax rates are the same for every level of taxable income and every change in income is an example of

proportional taxation

The multiplier is weakened in inflationary gaps because of

rapid price level increases.

In the Keynesian range of SRAS, if AD shifts to the left, then

real GDP falls

If the government wishes to maximize its tax​ revenue, it should

recognize that too high of a tax rate can decrease the tax base.

Reduction or elimination of dividend taxes is​ designed, in​ part, to

reduce the double taxation burden on individuals.

The U.S. Social Security tax is an example of a

regressive tax

The corporate income tax in the United States

results in​ individuals' being doubly taxed on corporate earnings.

Saving differs from savings in that?

saving is a flow, while savings is a stock.

Suppose that the value of the US dollar​ ($) yesterday was​ $1 = 4 euros. Today the exchange rate changed such that​ $1 = 8 euros. Given that the US​ $ has​ appreciated, the aggregate demand in the United States should

shift to the left

Given that the US​ $ has​ appreciated, the​ short-run aggregate supply in the United States should

shift to the right

Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to

sticky wages and prices

Which of the following is not a source of funding available to​ governments?

stock sales

When annual real federal receipts exceed annual real federal​ expenditures, the government operates with a budget deficit ​and, consequently, adds to its indebtedness during those years. The net public debt increases during those years.

surplus, does not add, decreases

The modern Keynesian Model assumes that

that prices respond to changes in aggregate demand but not fully.

In the Keynesian model, in a depression

the economy operates in the horizontal range of the SRAS curve.

Classical economists, according to John Maynard Keynes, are the ones that developed economic theory prior to

the great depression

Autonomous consumption is defined as

the level of real consumption spending that is independent of real disposable income.

In a progressive tax​ system

the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate.

The marginal propensity to consume​ (MPC) is

the percentage of an additional dollar of real disposable income that will go toward additional real consumption spending.

The total value of all outstanding federal government securities is

the public debt

The national debt is best measured as the

the total value of U.S. Treasury securities outstanding.

During normal​ times, fiscal policy probably achieves most of its impact through

the workings of automatic stabilizers.

Should the government wish to lower the price of gasoline to the​ consumer, one approach might be

to reduce the gasoline excise tax.

In 2010, the United States ran a __________ with all of its major trading partners and with every region of the world.

trade deficit

The largest and fastest growing category of federal expenditures is

transfer payments

If federal budget deficits ​increase, then a part of that deficit

will be financed by foreign dollar​ holders, who will buy fewer U.S.​ exports, thus increasing the U.S. trade deficit


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